Who's a Minister for IRS Purposes?
A Shift in Our Interpretation
Three special tax rules apply to ministers: dual tax status, housing/parsonage allowance, and withholding exemption. (You can find information about all of these on our
Ministerial Compensation Resources
page.) These rules operate together. In other words, for a given minister, all of them apply or none of them do. Essentially, the IRS says that to qualify for the ministerial tax provisions, a person needs to be functioning as a minister, serving in a religious context, considered a religious leader, and (quoting IRS language) "ordained, commissioned, or licensed."
Thus, historically, the Office of Church Staff Finances has regarded
ordination as the marker of when someone becomes a minister for tax purposes, in keeping with IRS language and with our polity. However, we sometimes heard from ministers who had recently received preliminary fellowship through the UUA: "Are you saying we don't qualify for the housing allowance (a significant tax benefit) until we get ordained?" With ordination often taking place many months - sometimes well over a year - after fellowshipping, this understandably felt frustrating and unfair to them. We also learned that some ministers' accountants said that their credentialed status through our fellowshipping process met the intent of the law. It was time for us to do some homework and provide some clarity.
So, we pored over the trusted
Church and Clergy Tax Guide
and gathered further information from online sources. We consulted with the UUA staff who support our ministerial credentialing process. Our research led us to agree that fellowshipping should qualify a minister for clergy tax provisions, just as ordination does. Ultimately, we brought our evidence to a lawyer with expertise in the intersection of church operations and IRS regulations. He has affirmed our conclusion that
either ordination or fellowshipping
satisfies the "ordained, commissioned or licensed" requirement in the faith-based workplace.
Please make sure that your minister(s) and those involved with compensation and payroll are aware of this shift in our interpretation. If you newly recognize that your minister is eligible for it, do designate a housing allowance for 2018 as soon as possible. (The housing allowance only operates prospectively, i.e., the congregation must designate the amount before expenditures can count toward it.) Feel free to contact
Rev. Richard Nugent
with any questions.
James Luther Adams, the 20th-century Unitarian minister and theologian, proclaimed that revelation is continuous and that we are always learning new truths. In the true spirit of our living tradition, we are pleased to revisit and revise our guidance to reflect our new understandings.